TY - JOUR
AU - Shleifer,Andrei
AU - Vishny,Robert W.
TI - The Limits of Arbitrage
JF - National Bureau of Economic Research Working Paper Series
VL - No. 5167
PY - 1995
Y2 - July 1995
DO - 10.3386/w5167
UR - http://www.nber.org/papers/w5167
L1 - http://www.nber.org/papers/w5167.pdf
N1 - Author contact info:
Andrei Shleifer
Department of Economics
Harvard University
Littauer Center M-9
Cambridge, MA 02138
Tel: 617/495-5046
Fax: 617/496-1708
E-Mail: ashleifer@harvard.edu
Robert W. Vishny
Booth School of Business
The University of Chicago
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-2522
Fax: 773/834-1920
E-Mail: Rvishny@gmail.com
AB - In traditional models, arbitrage in a given security is performed by a large number of diversified investors taking small positions against its mispricing. In reality, however, arbitrage is conducted by a relatively small number of highly specialized investors who take large positions using other people's money. Such professional arbitrage has a number of interesting implications for security pricing, including the possibility that arbitrage becomes ineffective in extreme circumstances, when prices diverge far from fundamental values. The model also suggests where anomalies in financial markets are likely to appear, and why arbitrage fails to eliminate them.
ER -